Having decided that I’m exceptionally poor at picking stocks, for the last year or so I’ve been investing mostly in Mutual Funds. I invest a total of Rs. 12000 every month in three different mutual funds. The three SIPs take the money out on 2nd, 9th and 27th of each month, I think.
On a number occasions in the recent past, to my bad luck, the stock markets have chosen to move up heavily on the day that my SIP is due. For example, the markets hit a trough two days back, and chose to go up by 700 odd points yesterday – when my SIP was due. Of course, I understand that the concept of investing on a fixed day each month is to average out these daily movements and ensure that I buy on an average at the average market rate. Nevertheless, so far the luck has mostly gone against me.
I’m wondering if it would be a good idea for me to lock in the previous day’s prices in case I get the feeling that the market may go against me on the deduction day. For example, two days back I had a good idea that there was a good chance that the markets might shoot up yesterday, and I would’ve been quite happy investing at the July 1st levels. I wonder if it would’ve been a good idea to go short long on a market index “stock” such as Nifty Bees on July 1st evening. I would clear out this position on the evening of the 2nd which was when the level at which my SIP investment would be made would be decided.
Most of the MFs I invest in invest mostly in blue chip stocks, so I don’t think there’s too much of a basis risk by hedging using a market index. The only problem i have is that Nifty Bees aren’t very liquid, and don’t get traded too much. Also, I don’t know if short selling is allowed in this (can someone let me know?) “stock”. If not, can you suggest some kind of an alternative investment that I can make one day before my SIP day (I mean I need to sell short) which is more liquid? ( actually the short position thing in nifty bees doesn’t matter. I own a significant amount of that stock so I can sell some of it and buy it back without actually being short)
Let me know if this kind of a strategy is sound.
(if you aren’t able to leave a comment here, mail me at skthewimp [at] yahoo [dot] com)
Oops. What I meant was I go long in the market on the eve of my SIP and clear out the position when my SIP actually kicks in. I don’t know how but I got confused between long and short. It reminds me of this story in Hull where he talks about a trader who wanted to close out a long position in cattle and instead went longer, and had to go somewhere in the rural US to actually take delivery of cattle.